American Airlines inks transport workers' contracts, plan settlement

By Caroline Salls

Pittsburgh, Aug. 23 - American Airlines, Inc. requested court approval to enter into collective bargaining agreements and related settlements with the Transport Workers Union of America (TWU), according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

American said it has reached an agreement with the TWU on the new six-year contracts for the mechanic and related and stores employee groups.

The company said the new contracts will give it the labor cost reductions and work rule changes it needs to operate its business competitively.

American said the new agreements address all of the key areas included in its initial proposal, while providing for annual pay increases, an early-out incentive and enhanced 401(k) contributions.

Contract details

The specific terms of the new contracts include the following:

• The duration of the contracts will be six years, provided that either party can launch negotiations any time after the fourth anniversary of the agreements with 60 days' advance notice;

• Medical benefits will be preserved in line with those offered to other American employees, including the amount of employee contributions.

Future retirees will have access to retiree medical coverage or Medicare supplement coverage at their cost;

• New retirement defined contribution benefits will be provided in line with those provided to peers at other network carriers, but the contracts call for a freeze of the existing defined benefit retirement plans;

• The contracts provide for structured base pay rate increases in each year of the agreement and for pay rates to be increased to industry average at the mid-point of the agreement;

• The contracts provide for greater pay-rate increases in out years, than the originally proposed 1.5%. Those raises will be funded by reducing profit sharing to 5%, rather than the 15% first-dollar profit sharing program that was incorporated in the company's initial proposals;

• The contracts give American greater flexibility to outsource some aircraft maintenance work, in line with other airline practice;

• The agreements provide an adjusted total cost savings of $171.7 million per year or 17% of total costs for these two employee groups;

• The scope and requirements of some job titles will be expanded;

• Overtime, vacation, and sick leave provisions will be modified;

• Changes to existing work rules will be implemented to increase the efficiency of the company's operations; and

• Some system and station job protections that limit the company's ability to effectively reorganize functions will be eliminated.

Settlement terms

Under a related settlement, the TWU will receive 4.8% of all of the equity in the reorganized company issued to holders of pre-bankruptcy general unsecured claims under American's plan of reorganization in exchange for most of the union's claims against the company.

American parent AMR Corp. said in the motion that it does not believe the claims excluded from the settlement will exceed $3 million of the roughly $2.2 billion of TWU-related claims.

The union will also have an up to $5 million administrative expense claim to pay for contract and settlement-related fees and expenses, as well as an up to $2 million administrative expense claim for payment of the fees and expenses of TWU's investment banker.

A hearing is scheduled for Sept. 12.

AMR, the Fort Worth-based parent of American Airlines, filed for bankruptcy on Nov. 29, 2011. Its Chapter 11 case number is 11-15463.

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